Foreclosure is one of the reasons why the real estate market is in a bad shape. Foreclosure takes place when a borrower or homeowner defaults or fails to make his monthly payments. The lender sends a notice of default. When necessary actions are not taken, this will ultimately lead to foreclosure, where the lender takes over the property and sells it to recover the losses from the default.
The process may be similar but there are actually different types of foreclosure. This depends on the mortgage contract and the actions taken by the parties involved. Here are the different types of foreclosure:
Judicial foreclosure
The judicial foreclosure process in each state is different. However, one of their common characteristics is that they are strict. There is judicial foreclosure if the court is involved. However, it all starts with a notice of default. If the notice is ignored or no action is taken by the borrower, a lawsuit is filed by the lender. The complaint triggers a lis pendens to be filed. This is necessary so that any person interested to purchase the property in question will be notified that there is a pending case involving the house. A trial follows, then a settlement.
After that, the court releases a writ of sale and then the property in question is sold through an auction. You will still have the opportunity to repossess the property, as long as you abide with the conditions set for you.
Statutory or non-judicial foreclosure
This is almost the same with the judicial foreclosure. However, no lawsuit is involved. This happens when the borrower or the homeowner defaults. A notice of default is sent. If no actions were taken to correct it, the borrower will receive a notice of sale of the property by the lender. After that, the property is sold through an auction.
Strict foreclosure
The lender files a lawsuit after the borrower fails to pay his obligation. After the court finds sufficient information that the borrower is at fault, it will order the borrower to make the necessary payment at a given period. If the borrower fails to make pay the lender during the timeframe given, the court will give the lender the right of the property to the lender. The lender then gets the chance to sell the property to recover the losses incurred when the borrower defaulted.
Deed in lieu of foreclosure
If you want to avoid foreclosure, then this is what you want to be doing. Here, you will hand the ownership of the property to the lender. This will mean that the foreclosure will not be reflected on your credit. However, you will lose the equity that you have built on the property.
Read your mortgage contract carefully and check the kind of foreclosure you might be dealing with. This is essential especially if you have defaulted so that you will know the next steps you should take. It is advisable that you consult a lawyer. However, what is more important is that you avoid any type of foreclosure if you can. This will not only hurt your credit, this can also be emotionally draining for you and your family.
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